27 May 2010 | David Meikle
A tactful, informed approach to this well-guarded category will bring the best savings, says David Meikle
If generalisations are to be believed, marketing and procurement have made pretty unhappy bedfellows.
Both sides agree they are not extracting best value from their marketing budgets,with savings lost through inefficient practices of both clients and agencies.
If the two sides worked together greater value could be achieved. But common co-operation takes the form of marketing handling the specification of the scope of work and then asking procurement to negotiate the best price. After a protracted negotiation both sides reach an agreement, but usually more through exhaustion than consensus.
Worse still, procurement is frequently kept at arm’s length from being involved in the process at all, ostensibly because marketing is “too complex” or for fear purchasing may damage a special relationship with their agency.
It’s worth remembering one
of the reasons these services weren’t first on the procurement radar is they are hugely complex and their value is more difficult to judge or measure. Those who just try to pick off some easy wins to chalk up a savings number will most likely come to a sticky and early end.
Smart marketing procurement is about encouraging all parties involved in the specification and the delivery of marketing services to work together more strategically, intelligently and efficiently. That’s where the
high-value savings are too.
Here are my five tips to establish a harmonious relationship with your marketing colleagues, as well as reaching a satisfactory business outcome.
1. Get yourself a marketing education
That is, of course, if you don’t already have one. Marketing is a complex discipline, the success of which relies on an optimal combination of your product’s quality, how it is distributed, its price and how it is promoted.
Procurement’s role often relates to the marketing services that promote products (advertising, media, design, digital, PR and direct marketing agencies) in delivering promotional messages through print, broadcast and online media. To add to this complexity, most of these elements are interdependent. Gaining an overview of marketing from the outset would set you off to an immeasurably better start.
CIPS and ISBA, the advertising industry association, both run training courses on this.
2. Establish a common goal
The most powerful weapon in a marketer’s arsenal is the budget. The perception of procurement among marketing professionals is often of a department charged with reducing budget in favour of the firm’s bottom line. Hence when procurement people try to help, they often come up against defensive or protective behaviour from marketers.
Marketing is a strategic investment with sometimes complex return on investment (ROI) models not always calculable in a traditional manner or time frame. Buyers are almost universally incentivised by savings and marketers by sales targets. If procurement can make savings that marketing can then show in their own budget without compromising sales, all should be well.
But before you start you need to be certain the marketing director is equally as incentivised as you are to reduce marketing spend in favour of the bottom line. But if there’s nothing in it for them at all then they will have little or no incentive to co-operate. Such is the complexity of marketing that it is easy to feign co-operation and produce few hard savings.
3 Be nice
Marketers may fear the exposure of their poor or irrational buying practices. The introduction of proper procedures for things they have been buying for years may present the prospect of significant embarrassment. So be nice.
I estimate most marketing spend could be reduced by up to 30 per cent without having an adverse effect on sales. To achieve such a saving would require a few changes:
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Increasing the efficiency with which third-party resources are used.
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Reducing waste. Many of the services marketers buy from their agencies may be relevant but often go unused or ignored.
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Better stakeholder management. A lot of inefficiency is down to hierarchical approval chains and poor stakeholder management in creative development processes. This results in the same work being done repeatedly.
But the discovery of such significant savings is unlikely to be achievable unless your marketing director has 100 per cent confidence you won’t expose their inefficient and uneconomical ways of working to boardroom ridicule.
4. Propose, agree and above all execute buying strategy
Proposing that procurement execute the marketing buying strategy might sound obvious, but I can assure you it isn’t.
Research undertaken a few years ago suggested 35 of the top 50 UK agencies are not even making 15 per cent operating profit – and this was before the recession hit. Ultimately this compromises their performance for most of their clients. These low margins are simply due to being nailed on price.
Most marketers understand agency success will aid their own brands’ success. Better performing agencies can attract better talent and can get a better ROI for their clients. Agencies are generally strategic partners with which companies spend a lot of money (in the top right-hand box of the procurement buying-strategy matrix), so it makes more sense to look to the scope of work or more efficient ways of working rather than hammering away at their profits.
5. Look beyond the obvious for value
When you are considering which suppliers require which strategy, look past the obvious when you are assessing their price. Consider their potential value.
A good packaging design agency can change the fortunes of a consumer goods brand overnight. However unlikely, an ad campaign featuring meerkats (for comparethemarket.com) has delivered way beyond the value expected from the terms of the agency’s service level agreements.
Think about which services require talent and which require a learnable skill or technology. Talent-based services, those requiring the development of brand strategy, creativity and artistry, need to be nurtured for best value. Skills and technology-based services, such as the duplication and distribution of advertising materials, can be bought more cheaply as their value is almost entirely measurable and quality control is not subjective.
* David Meikle is a founding partner of Salt Value Management
